Reimbursement and incentive contracts in health care

By Alan Maynard

Outline Background Incentivising hospitals Incentivising doctors What next?

Background What’s wrong with the health care

market?1. Variations in clinical practice : the

Dartmouth Medical School (Wennberg and Fisher e.g NEJM October 2003), Yates and Bloor-Maynard(HSJ 12/2002)

2. Inappropriate care (Bernstein et al IJHTA 1993)

3. Medical error (Too Err is Human IOM 1999)4. Failure to measure outcomes (Nightingale:

dead , relieved and unrelieved)

Hospital payment systems What are you try to achieve?1. Expenditure control, or cost

containment2. Efficiency3. Equity, in health care funding?

access? Utilisation? or health status?

The policy issue of ranking policy goals and making trade offs

Payment options Global budgets Retrospective budgets Prospective payment per case Non financial incentives related to

activity, patient access and patient outcomes (levels of patient outcome and distribution between social classes)

Global budgets I

Fixed financial allocation to the hospital How is it fixed?

last year plus x+y+z (where x=inflation, y=scandals in the press and z=influence of local politicians!

Or allocation by formula according to capitation weighted by need

how do you identify and manage prices, quantity and quality?

Global budgets II A global budget can give expenditure control But offers no micro regulation regulation of:

price quantity (volume) quality

What measure of volume? What of quality?

‘The operation was a success but the patient died ……’ !

Global budgets III

Contracts: who bears the risk? Purchaser or provider? Block contract: fixed allocation to

cover all care delivered in the year risk with provider need for activity ceilings and floors

cost per case contract risk for purchaser without a

volume.activity cap?

Global budgets V: summary Macroeconomic cost containment can

be achieved Microeconomic problems continue:

prices: is provision at least cost? quantity: is volume appropriate? quality: is treatment provided

efficiently(i.e low cost and good outcomes) with medical errors controlled at least cost?

Retrospective budgets I

Fee per item of service U.C.R. system in the USA pre-

1980s UCR= “usual, customary and reasonable”)

Cross subsidisation Still exists in the US system today:

hospitals typically have dozens of different payers

Cross subsidisation in UCR system

Private insurerPrivate insurer

Blue cross/blue shieldBlue cross/blue shield

Medicare/MedicaidMedicare/Medicaid

PoorPoor

CostCost

Type Type ofof

funderfunder

Retrospective budgets II

Perverse incentives maximise activity regardless of

appropriateness and efficiency? No systematic management of

quality activity mix depends on relative

prices lack of cost control

Retrospective budgets III: the German case Majority (80%) paid on per diem

basis Longer lengths of stay: inefficient

and costly Too many beds and hospitals Move towards DRGs Retrospective budgeting is seen as

inflationary and inefficient, but it does incentivise activity

Prospective payment by case I Diagnostic related groups

470 groups Hospital revenue/income is

determined by DRG price x volume of activity

DRG systems require hospitals to manage with good information systems but these systems focus on price and volume

Prospective payment by case II Exclusions in the US system:

physicians pay outpatients mental illness

Prospective payment by case III Further problems:

sticky prices: how are DRGs adjusted over time as technology and relative prices alter?

DRG “creep”: specialist software to maximise income/revenue

funding medical schools, usually separate information needs (high transactions costs) no control of volume or quality, and hence

expenditure.Did not control inflation

Prospective payment by case IV

Effects: Short term reduction in length of stay ‘quicker-sicker’ (Rand studies in the

1980s) cream skimming removal of cross-subsidisation hospital closures access for poor (uncompensated care) supply side moral hazard (reduce

service content)

Purchasing hospital care 1 What do you want to purchase? Global budgets give to expenditure

control if the budgets are “hard” Global budgets do not give you control

over volume/access which is important to patients and to Governments concerned about waiting times

Do global budgets and DRGs enable you to achieve expenditure control and explicitness about volume?

Purchasing hospital care 2 Global budgets and DRGs do not resolve

the problems of variations in medical practice activity, appropriateness and quality/outcome measurement

Policies to deal with activity variation and outcome measurement :job plans for clinicians, publishing mortality data and measuring HRQOL

Purchasing hospital care 3 Job plans :measure, manage and police

practitioner activity data about 4 aspects of their work

1. What do they produce by case mix and outcome

2. How much do the produce relative to their peers?

3. What principles determine their adoption of new and abandonment of old technologies

4. Who gets what care by social class?

English national tariffs=DRGs Why bother with national tariffs when

they will have the same effects as DRGs?1. Sort out accounting and clinical practice

variations?2. To increase activity?3. No efficiency and equity effects? No

outcome measures and “RAWP” trade off? Being used for all elective activity from 1/4/2005 and more extensively in Foundation Trusts

Paying doctors Doctors can be paid on the basis of1. Fee for service2. Capitation3. Salary “There are many mechanisms for

paying physicians, some are good and some are bad. The three worst are fee for service, capitation and salary” Jamie Robinson, Milbank Quarterly 2001

Type of pay

Incentive effects

  increase activity

decrease activity

shift costs

target the poor

control cost

fee-for-service

yes no no maybe no

salary no yes yes no yes

capit-ation

no yes yes no yes

Doctor payment systems

Paying GPs: the old system The role of the GP :the John Wayne

contract! General practice is a data free activity! Nearly 40% of GPs are now on salaried

and the rest are self employed and paid by a mix of capitation, ffs and salary elements. Contracts were for 24/7/365 cover for patients

The 2004 contract Contract is with the practice. GPs

can remain salaried or on the old capitated contract

“Out of hours” opt out Ten item “quality contract”:what is

the opportunity cost What will be excluded? “What is

not incentivised is marginalised”

GP Contract quality framework A: Clinical indicators

CHD: 121 Stroke: 31 Cancer: 12 Hypothyroidism: 8 Diabetes: 99 Hypertension: 105 Mental health: 41 COPD: 45 Epilepsy: 16 Total: 550

Overview of new contract Uncosted e.g pharmaceutical costs Knock on effects for secondary care: e.g

referrals for diagnostics and I/P care Administrative costs of data systems ,

collection and policing: the likelihood of gaming

The problem of incentivising GP practices e.g. GP fund holding (see Dusheiko,Gravelle, Jacobs and Smith, CHE technical paper 26)

Annual differences between fundholder and non-fundholder admission rates

Boomerang health policy Having abandoned GP fund holding

in 1999, it is to be reintroduced in 2005 as “practice based fund holding”

Will this “rebranded “ system work efficiently and equitably?

Paying hospital consultants Salary plus excellence awards New contract 2004 with basic 10x4 hour

programmed activities, of which 7.5 are “clinical” and 2.5 are “non clinical

Job plans for 41 week year (rest is vacation and education)

Need to use data to manage their work: emergence of fee for service experiments to alter activity distributions….

Variation in activity in general surgery: FCEs

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

100 90 80 70 60 50 40 30 20 10 0

Ranking of consultants (by percentile, most active at 100, least active at 0)

Fini

shed

Con

sulta

nt E

piso

des

(FC

Es)

All Trusts Anonymous Hospital NHS Trust

Variation in activity in general surgery: HRG/cost adjusted

100 90 80 70 60 50 40 30 20 10 0

Ranking of consultants (by percentile, most active at 100, least active at 0)

Cas

emix

-adj

uste

d re

lativ

e co

st (

£)*

All Trusts Anonymous Hospital NHS Trust

*FCEs x national averagereference cost based on HRGs(see guidance notes)

Conclusion “ The only way to pay doctors is to

change the system every three years as by then they have learnt to game it!” Bob Evans

Overview

1. Be clear about the system goals, their ranking and trade offs before you proceed

2. Mixed systems unavoidable: mix of both financial and non financial incentives

3. Gaming is inevitable and there are no quick fixes!